Author bios: Shannon Ding is a Masters in Public Administration in International Development student at the Harvard Kennedy School. During the summer of 2011, she worked in South Sudan's Ministry of Investment. Kelly Wyett is a Masters in Public Administration and International Development student at the Harvard Kennedy School. During the summer of 2011, she worked in the Central Bank of South Sudan. Eric Werker is an associate professor in the Business, Government, and the International Economy Unit at Harvard Business School. His research explores the economics of development and of developing economies. The research was conducted with the support of the Ewing Marion Kauffman Foundation. It is part of a longer report to be released later in the year. South Sudan: The Birth of an Economy Shannon Ding, Kelly Wyett and Eric Werker 1 A DRIVE AROUND SOUTH SUDAN The first thing one notices on the streets of Juba, the capital of South Sudan, is the abundance of white Toyota Land Cruisers. There are less than 100 km of tarmac roads in the entire country of 240,000 square miles; without a 4-wheel-drive vehicle, one cannot move around. A closer look at the Land Cruisers reveals that most have special number plates: UN, for United Nations vehicles, and GOSS for Government of South Sudan vehicles. One can learn a lot about the economy of South Sudan just by watching the roads. Apart from the Land Cruisers, one notices a large number of water and fuel tankers on the road. Public electricity in Juba, a city of 1 million, is in very limited supply, and public water nonexistent. As a result, almost all workplaces and wealthier private residences rely on generator power and water delivered by truck. The roads also tell us how waste is managed in Juba. While some aid agencies and hotels do contract out to garbage collectors, the majority of waste is piled in the streets and then burned. As in many developing countries, driving in Juba is a daunting experience. There is a complete absence of road signs and traffic lights, and only one road has streetlights. What’s more, while traffic moves on the right-hand side of the road, most drivers also sit on the right-hand side of the car, as most vehicles are imported from Kenya. When we turn our attention to the actual people on these highly informative roads, other issues become apparent. There is no formal taxi network in Juba. Instead, a few enterprising Kenyans and Ugandans have established themselves as private taxi drivers. Nor do foreigners dominate only in low-skilled service jobs. Most of the heavy machinery on the roads is also operated by foreigners, particularly Asians. Indeed, across most of the booming sectors of the economy, the largest firms are foreign-owned and foreign-operated. Venturing outside Juba, one also gains insight into what the roads were like before the recent bout of post-war reconstruction. First of all, it can be a struggle to reach certain places. South Sudan lacks interior roads that link smaller villages with larger towns. As a result, a large percentage of the population is completely isolated from the modern economy. Even where roads do exist they are 2 unpaved, unevenly surfaced, and poorly marked. Moving from the northern border to the capital in the South is estimated to take three weeks by vehicle—compared to two hours in a plane. And during the rainy season, many places are completely cut off from road traffic. South Sudan’s third biggest city, Malakal, population 125,000, essentially grinds to a halt for three months of each year while all of its roads turn to sticky mud. During this time, people move the same slow and tiring way they have for hundreds of years: by foot or mule. Navigating the roads between cities and across borders is also rather expensive due to the numerous extortion points. Recently, a committee formed by the president found 44 authorized and 65 unauthorized tax collection points operating in just two states: Eastern Equatoria and Central Equatoria.1 From bad infrastructure and a lack of regulation, to skills shortages and corruption, doing business in South Sudan is not easy. And the South Sudanese are not any producing goods for export. But this is forgetting one major observation: traffic! Despite these constraints, there is still a significant amount of economic activity. In what follows, we discuss the birth of a new economy in a society which has only recently emerged from a 22-year-long civil war. The pace of growth so far has been fast but uneven. We find that aid and oil money is flowing rapidly into certain sectors, while other employment- generating areas of the economy, particularly agriculture, have barely changed in centuries. As a result, the recent windfall of wealth has yet to translate into tangible development benefits for the majority of the population. In order to achieve growth in these other sectors, there is a need for far more innovation in both government policy and business strategy. This article is drawn from the findings of a study conducted in June through August of 2011, by seven graduate students from the Harvard Kennedy School, including two of the co-authors, on the emergence of entrepreneurs and the private sector in South Sudan. Our team interviewed over 200 people across South Sudan, including officials at six ministries, two state departments of agriculture, and the UN Food and Agriculture Organization (FAO) and World Food Program (WFP), and managing directors at all eight local banks, four cell phone providers, and several hotels, restaurants, and supermarkets. We also visited five of the ten states where we interviewed farmers, retailers, wholesalers and traders and 3 conducted informal observation. Unless otherwise indicated, the information on challenges in the specific sectors is drawn from this research. FROM CONFLICT, THE BIRTH OF A NEW NATION South Sudan achieved independence from Sudan on July 9, 2011, marking the culmination of two civil wars that date back to 1955. The root causes of these conflicts can be interpreted from many different angles, including racial, religious, and post-colonial lenses, but the primary symptom of these afflictions is clear: the South was significantly underdeveloped and its people marginalized on social, political, and economic grounds compared to the North, where the various governments ruling Sudan have historically based their power. It is difficult to provide a narrative of the conflict in simple cultural terms because there is no “single people” to speak of in either the North or the South. Sudan as a whole has a population of nearly 30 million, with Arabic and Dinka speakers representing the largest language cohorts. Other Sudanese speak 14 minor languages, which are further divided into roughly 100 dialects. About 50 of these dialects are spoken in the South alone. South Sudan’s incredibly complex society can be broadly divided into two regional groups: agro-pastoral and pastoral communities in the northern states of greater Upper Nile and greater Bahr al-Ghazal, which have traditionally relied on cattle-raising as their main livelihoods, and sedentary agricultural communities found mainly in the southern Equatorial states. The tribes under which these communities are organized rely on a wide range of governance structures. Only two groups—the Azande based in Western Equatoria State and the Shilluk based in Upper Nile State— are governed as formal kingdoms. The large pastoral societies that make up the majority of the South Sudanese population, including the Dinka, Nuer, Murle, and Mundari, are structured in a decentralized manner, consisting of many independent but interlinked clans and chiefdoms. Until the 19th century, South Sudan’s economy was largely insulated from outside influences due to the country’s impenetrable geography. Arab traders from earlier Sudanic kingdoms in the North did traffic in gold and slaves captured in the South. As a whole, however, the South was relatively unaffected by northern kingdoms, though it resisted their expansion southward. Southern societies relied primarily on subsistence agriculture and animal husbandry, and there were almost no efforts to commercialize these 4 activities. Many pastoral communities did not trade in cattle or sell them for meat because of their symbolic role in defining kinship relations. Even today, cows are the primary currency for establishing bride prices, and exchanges of cattle are mostly limited to marriages and other celebrations.2 South Sudan’s political economy changed dramatically in 1820 with the conquest of Sudan by Muhammad Ali of Egypt, which led the way for further marginalization and exploitation by outside forces. Slave raids increased on a massive scale, and the new rulers demanded tribute in the form of slaves, cattle, or ivory. Not only were slaves employed in the army, as had been done under earlier kingdoms; now, for the first time ever, domestic slavery also became widespread in the north. The Anglo-Egyptian Condominium, which governed Sudan until 1956, further contributed to inequalities between the north and south. Northern and southern states were managed separately under different institutional arrangements, as British administrators wanted to govern the south under an “African” rather than an “Arab” model. Education was actually discouraged among some areas of the south, particularly among pastoralist communities, since British administrators in the Native Administration believed it distanced students from tribal customs. Sudan achieved independence in 1956 under a new government that, in theory, represented both northern and southern citizens. However, southerners were significantly underprepared and underrepresented in the new state. Of the 800 new government positions that the British vacated, only four were allocated to southerners. Aggrieved southern army officers mutinied against the new government in 1955, resulting in the first civil war, which lasted until 1972.